Direct Bank Crediting

direct granting of credit by banks to enterprises and organizations.

In the socialist countries, direct bank credit is the primary form of organization of credit relations. In the USSR, direct bank credit replaced commercial credit in 1930. It is now used as an economic tool for planned management of production. Direct credit is granted by the Gosbank (State Bank) of the USSR and the Stroibank (Construction Investment Bank) of the USSR. About half of the circulating capital of enterprises and organizations is formed through the direct bank credit system. Through the system, monetary savings are mobilized and used productively, monetary capital is reciprocally redistributed, national records of production and distribution of social product are kept, circulating credit capital is created, and the country’s monetary circulation is regulated.

As part of a general economic reform, direct bank crediting is undergoing a process of refinement. The limits are being expanded and the objects of bank credit are being consolidated. Credits are being expanded for expenditures on fixed capital related to intensification of production, technological progress, and improvement of the quality characteristics of the output. Credit methods are being refined, including those based on turnover and remainders of production stocks and budgets. Credit conditions for enterprises are being differentiated so as to provide credit penalties or benefits, depending on the enterprise’s observance of the principles of khozraschet (economic accounting), contract discipline, and fulfillment of state plans. The development of direct bank crediting is based on a further bolstering and utilization of the principles of granting credit in a socialist economy.

In other socialist countries, direct bank crediting is also the basis for organizing credit work. Credit activity is being concentrated at one, two, or three banks, except in the German Democratic Republic. Improvements are being made in the system for planned use of credit in the planned organization of the circulating capital of all economic sectors and the formation of different elements of the capital cycle.

In addition to direct bank crediting, Hungary and some other socialist countries also have elements of commercial credit.

In the capitalist countries, bank credit is to a large degree based on commercial promissory-note credit; in other words, it is indirect. Growth in direct bank credit reflects the merging of bank capital with industrial capital.